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Notes from Stanford US-Asia lecture with Prahalad and Barker

Here are my Treo-tized notes from yesterday’s lecture in the US-Asia Tech Mgmt. Series at Stanford, which closed out the Spring series. Note that the presentations will be available online here - keep checking.

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Jonathan Barker spoke and focused on China:

• Huge demographic and economic changes: Private property growing, primarily as lease holding from government
  Changing middleclass consumption patterns will have tremendous impact. Adoption of credit and cashless payment systems is coming: there were 200 million bank cards in 2000, in 2004 there are 468 million.
• Chinese consumption is predicted to increase 18% annually for the next X years (versus a static 2% in the US)
• Consumer electronics consumption (not just manufacturing) was $49.6 billion in 2004 (#2 behind the US right now). IDC predicts that will double to $100 billion by 2008. Covers all areas – mobiles, tvs, audio devices.
• Need infrastructure for autos: (missed how many they have now) but in 2020 China’s expected to have 140 million cars on the road – huge impact for cities (urban planning, congestion, pollution), the countryside (highways, gas stations, etc etc) and the nation in general.
• Factors even extend into the non-glamorous: take milk consumption – he showed a chart where per capita consumption went from about 2 (liters?) to 40-50 (liters?) per year. (non-sequitur thought of mine: I had read that many Asians have difficulty tolerating lactose. Is that true? If so would milk consumption be a habit, a sort of acquired taste that would signal affluence?).
• Then he discussed a most interesting bit: China has a metric called the Gini coefficient, which is a ratio of inequality ranging from 0-1, indicating roughly the gulf between the richest and poorest (very interesting – something I recall neither from Political Economy or recent discussions of class in America like in the recent series from The NY Times). China’s is now .46, disturbing when it was just .33 in 1980 (for comparison’s sake it’s .41 now in US).

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Then we had C.K . Prahalad speak on India.

Central thesis: His work is now focused on the 10 countries in the developing world (see one of his slides for the full list, but it’s the usual guys). These countries represent $16 trillion in market potential. To get there we need to adopt the point of view of bottom of pyramid, abandon our own preconceptions and ways of doing business.

The question is what do with the 80% of humanity that’s stayed under the radar of the big global and local companies. hey’re simply unserved and that creates lots of opportunities for tremendous innovation and profit.

He wanted to give specific examples of why and how things work, because it’s very different. Everything about serving this market challenges conventional thinking and assumptions. The price-performance ratio needs to be completely rethought while maintaining world class quality. You need to plan for saleability, selling profitably at $1, not $100. Right now, the NGOs don’t pay attention to scale, everything is done on a regional/national project basis. Industry must step in and build this out.

So back to the question of how to convert 5 billion poor people to consumers. He uses a pyramid to show his 3 themes: global restructuring, conventional strategies and tactics, and the bottom of pyramid (this is probably made much more clear in his book).

This matters because in age of saturated markets, where we are chasing the same 1 billion people with endless product variations, the other 5 billion needs everything, making for essentially limitless opportunity. And it’s not a question of being “backwards”, it’s not about adopting best practices, it’s about finding next practices to leapfrog from being behind to adopting next generation tools. As just one example, India (or some region in India) held a fully electronic poll for their elections in 2004; of course the necessary equipment was transported by elephant, but their elections were successfully held using technology we can’t even get right (or trust, but that’s another story in famously corrupt India). Prof. Prahalad maintains it’s just a project management challenge, and encourages the Stanford Engineering students to bite in and take it up.

The theme of “Next practice, not best practice” would come up again and again in his presentation, that emerging markets are huge, demographics (youth) & growth rates appealing, especially versus the aging and stagnating demographics of the US and Europe.

So back to the question at hand, how to marry low cost, good quality, profitability, and sustainability (I might have missed one) at same time, fuse them into each product. He went through a couple examples (but had many more, I’m sure they’re all this fascinating).

• Hospitality in India. Indians love to travel – visiting relatives, religious pilgrimages, whatever – each day 10-20 million Indians use the national railway system. Where do they sleep? Sometimes even on the street (Gershenfeld’s Fab talked about the huge increase in prices of Bangalore hotels because of the influx of foreigners in to spend time at the tech haven – prices like $250+ a night). Prof. Prahalad wanted to do it for 10% of that kind of cost. So what do you do? You figure out what it will look like. They had a team of 6 people (students? At UMichigan or somewhere else? Is probably in the book.) They limited the scope, to redefine the market as being not luxury, not budget. They created a new market, but plotting the four most critical elements on the sides of a cube: space, modernity, price-performance, saleability. These were the self-imposed constraints (I think of them more as imperatives) that could not be relaxed. He didn’t say, but it has to be the case that everything else was up for grabs.

  So the example here is IndiOne, a venture backed by Tata Industries that’s the result of these efforts.

  

  They offer rooms for $20 US and it looks like a modern hostel meets a less expensive European chain hotel. The rooms are appealing, simple and modern. They have showers, LCD tvs, cable, and broadband connectivity. Hotel lobbies have stripped down restaurants. How did they do it? They rethought everything: new training practices, maintenance plans, human resources (hiring, staffing – they do this with far fewer people), and intelligent application of IT at the backend. Delivering more features, at a lower price. And they specifically thought about scale: they chose iconographic elements so they would be portable (and recognizable) globally. This is what 6 people did in 18 months. Ten more are due to be built next year. Their goal was to destroy the status quo price-performance curve, delivering a new kind of value unseen before. Watch out Marriott.

• The second project he described was to increase adult literacy. They chose to focus not on the educational basics of the “3Rs” (reading, writing, arithmetic) but on the 1R of reading. Goal was to quickly get people to read, so they went with immersion type video, not alphabets and piecemeal word construction. [I can say that while using that Rosetta Stone sw to learn Japanese, the immersion was very effective, especially for the kanji; though I did memorize the kana]. Prof. Prahalad said that half of all Indian women are illiterate. Interestingly, from the video he showed, learning to read via computer was greeted with an enthusiasm that was missing from Gershenfeld’s discussion of tech adoption in India in Fab. It might be the difference between just plunking down hardware and in establishing a program and software to do something immediately useful for the population? This venture was put together by TCS, Tata Consultancy Services as a non-profit, non-commercial project. He said something about the software being open source.

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So that concluded the presentation part, the presentations will be online @ asia.stanford.edu/events/Spring05/ee402t/
Then followed some Q&A from the audience. I just captured snippets of the responses of the professors.

• ….Because our standard of living is so high, we miss out on serving everybody. We need to get back to the old ethos of Ford Motor Company, where the goal was to build products that everyone could afford. There needs to be a new industrial revolution.
• Discussing wage inequalities around the world: Information asymmetries lie at root of wage disparities; they will be brought in line once the information is available to all.
• Closing question - highlights of the best opportunities for the budding young entrepreneurs in the room:
  • Barker: In China, there are still lots of dirt roads, very basic opportunities are everywhere. To be successful, you need to learn to finesse the opportunity, to adapt to the local conditions and to not overlook huge potential even though many opportunities are not sexy by Western standards.
  • Prahalad: Invest time in languages and intercultural awareness. Focus on becoming part of global citizenry. In exchange for the opportunity to participate everywhere/anywhere in the world you have the obligation to do something productive, which will improve the world. Develop a personal mission, a desire to leave personal legacy.

This entry was posted on Wednesday, June 1st, 2005 at 10:40 am and is filed under Events & Happenings, Strategy-Marketing.

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